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Forecast: Oil Prices Can Rise, But Under Pressure in Near Term

November 20, 2011 at 21:40 by Vladimir Vyun

Crude oil prices started a rally on August 2010 and were rising till May 2011, when the rally has failed. Since then the prices were extremely volatile as market sentiment shifted, making traders unsure about future performance of the commodity.

In the short-term, the drive for oil should be the same as for other commodities: Europe and its debt crisis. The persisting problems of the European Union have a negative impact on oil and will likely continue to do so for some time. Market sentiment improved by the end of the week, but, unless some major positive event would occur, it’s not likely traders would retain optimism for long.

In the longer-term, the situation in Middle East and North Africa adds its influence to that of Europe. The ongoing political turmoil should prove positive for oil prices as it’s threatening supply. Libya draws special attention of market participants as it may put downward pressure as its output recovers, but may also drive the prices higher in case the country fails to sufficiently increase production.

US Energy Information Administration estimated that the global consumption of oil will grow from its record-high level of 87.1 million barrels per day in 2010 to 88.2 million barrels per day in 2011 and 89.6 million barrels per day in 2012. The non-OPEC output will rise by 0.4 million barrels per day in 2011 and 1.1 million barrels per day in 2012, while OPEC production will remain largely flat, according to the estimates of the EIA.

The EIA revised its price outlook for the WTI crude oil slightly up to the average of $100 per barrel in 2011 and 2012. Traders should be cautious as volatility remains extremely strong and fundamentals currently aren’t particularly supportive for crude.

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